24/07/2013 17:56:00

E.ON Considers Relocating Mothballed Power Plants Outside Europe -Sources

By Hendrik Varnholt and Jan Hromadko

FRANKFURT--German utility E.ON SE (EOAN.XE) is considering dismantling some European power plants that have been mothballed due to poor profitability and relocating them to faster-growing emerging markets such as Turkey, people familiar with the matter told the Wall Street Journal Wednesday.

The radical idea underscores the dire situation facing many utilities in Europe, where the combination of weak energy demand caused by the economic crisis and the rapid expansion of renewable energy is undermining the conventional power-generation business.

E.ON isn't the only company considering drastic measures. On Tuesday, Swedish utility Vattenfall AB, opened the door to the sale of its power business in continental Europe. E.ON's main German rival, RWE AG (RWE.XE), has warned it could shut down a fifth of its power plants.

One of the plants that E.ON could pack up and ship overseas is the 430-megawatt combined-cycle gas turbine power plant in Malzenice, Slovakia, said a person familiar with the company's thinking. If E.ON's calculations prove that a move is economically viable, the plant could be moved to Turkey, which is a more attractive market with stronger energy-demand growth, the person said.

E.ON expanded into Turkey earlier this year in partnership with local conglomerate Haci Omer Sabanci Holding AS (SAHOL.IS). Together, the companies plan to develop around 8,000 megawatts of power generation capacity by 2020, equivalent to around 10% of Turkey's overall capacity.

E.ON has invested around 400 million euros ($526 million) in the gas-fired Slovakian plant, but it will go offline in October less then three years after it was commissioned because it has been making a loss, E.ON said earlier this month.

Power plants fueled by gas are suffering the most in Europe due to a combination of high fuel prices and intense competition from cheaper coal supplies. The surge in production of wind and solar energy is also reducing demand for gas-fired power, because these forms of renewable energy compete directly with facilities like Malzenice in serving peak electricity demand.

Since it began operating in January 2011, the Malzenice plant has operated for only around 5,600 hours, well below its target of 4,000 hours to 5,000 hours per year, E.ON has said.

E.ON isn't alone in its troubles. Germany's largest power producer by capacity, RWE, has also warned that it is struggling to operate its fleet of fossil-fuel power plants profitably. Chief Executive Peter Terium has said that around one-fifth of the company's 50 gigawatt power generation capacity is at risk of being shut down.

Swedish state-controlled utility Vattenfall wrote down the value of its power plants by EUR3.5 billion Tuesday, blaming low power prices and muted energy demand across Europe.

The company's Chief Executive Oystein Loseth said he didn't expect the European power market to recover in the foreseeable future. Vattenfall will now consider the full or partial sale of its continental European business, although it will retain full control of its operations in the Nordic region.

Relocation could be an economically viable last resort for other smaller plants like E.ON's Malzenice facility if the market does not improve, said Thomas Kaestner, a Munich-based energy expert at consultancy Ernst & Young.

The chairman of Slovakian energy regulator URSO said in a statement that his office has no authority to challenge decisions taken by owners of power plants. However, regulators could prove to be an obstacle to extending the relocation of power plants to other countries.

Germany's federal grid regulator, for example, has said that it will not accept any more plant closures south of the river Main, because of serious concerns over the reliability of the power supply in the south of the country following the shut down of several nuclear reactors there.

--Leos Rousek in Prague contributed to this article

Write to Hendrik Varnholt at hendrik.varnholt@wsj.com and Jan Hromadko at jan.hromadko@wsj.com

Subscribe to WSJ: https://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 24, 2013 12:56 ET (16:56 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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